Pensioners are likely to be worse off in the New Year, despite a drop in headline inflation figures, according to Watson Wyatt.
The Retail Prices Index (RPI) fell by 1.4% over the past twelve months, and a Government guarantee against negative inflation means the state pension will rise by 2.5% in April, but Watson Wyatt says pensioners will still feel a squeeze on their income in 2010.
Average pensioner spending patterns suggest the elderly have faced a rise in costs of around 2.5% over the past eight months, and with VAT returning to 17.5% next year, retired people could see a fall in real-terms income.
John Ball, head of defined benefit pension consulting at Watson Wyatt, says: "At first sight it looks like pensioners have got a good result over the past two years but they may think differently.
"Ironically, the measure of inflation used to up state pensions ignores spending by the pensioners who most rely on them, and inflation is still positive if you focus on the things they buy."
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